.C51, 




LIBRARY OF CONGRESS 





ODDmt,t.SllD ^ : 



LM- 



Some Misapprehensions 
Touching Life Insurance 



'Published by the 

(J^Iarnegie Foundation 
For the Advancement of Teacjiing 



576 Fifth Avenue 
New York 



In the experience of two hundred 
years the only method by which large 
numbers of men have been led to insure 
is through the direct solicitation of 
agents. This is particularly true of that 
majority of men who most need insur- 
ance, men of small income living on 
fixed salary . . . 

It is of course a fundamental ques- 
tion whether teachers can be induced to 
avail themselves of insurance facilities, 
however favorable, without the pressure 
of the soliciting agent. This is a matter 
which only experience can demonstrate. 

Twelfth Annual Report of the Carnegie 
Foundation (191 7) 



eiffc 
Publisher 
SEP IS i8J» 



SYNOPSIS. 

The limited use of insurance by college 
teachers is due to its lack of adjustment 
to their needs, 3. 

The Teachers Insurance and Annuity Asso- 
ciation now provides, without overhead 
cost, individual advice and adapted and 
inexpensive policies not otherwise avail- 
able, 4, 5. 

The great insurance companies have co-oper- 
ated with the Association which is in no 
sense their rival, 6. A pamphlet, how- 
ever, has been circulated, 7, attacking 
the view of the Carnegie Foundation 
that endowment insurance is not suitable 
for teachers of limited income, 8. 

Legitimate life insurance, 9, has been in- 
volved with savings, speculation, and 
agents' commissions, 10. Long term en- 
dowment insurance is less suitable to the 
teacher than separate term and annuity 
contracts, 11, since it combines alternate 
provisions, 12, both of which cannot be 
realized, 13, and is therefore expensive, 
and speculative, 14. 

A combination of insurance and annuity is 
definite, 15, less expensive, and provides 
greater protection, 16. This is demon- 
strated, 17, by fair comparisions, 18, of 
actual rates, 19, benefits, 20, and con- 
tracts, 21. Such a combination is inex- 
pensive and unspeculative, provides 
larger income, increasing protection, 22, 
advantageous retirement, and secures the 
co-operation of the college, 24. 



Commercial companies cannot provide these 
features, 24, and the value of their en- 
dowment insurance, 25, is reduced by 
policy loans, 26. 

Participating policies, 26, and mutual com- 
panies, 27, cannot under insurance legis- 
lation, 28, free policy-holders from over- 
head expenses, 29. Mutualization, 30, 
gives only apparent but not real control 
to policy-holders, 31. 

The Teachers Insurance and Annuity Asso- 
ciation is supported by a philanthropic 
corporation, 32, with prospective repre- 
sentation of policy-holders, 33. Partici- 
pation in "divisible" surplus, 34, the 
same in stock and mutual companies, 35, 
is never contractual, 36. The Teachers 
Insurance and Annuity Association con- 
ducts its business at the lowest net rates, 
without overhead, without profit, with 
the prospect of real participation, 37, 
unusual security, and freedom from com- 
mercial pressure, 38. 

Misapprehensions concerning its policies are 
based on lack of legal or technical knowl- 
edge, 39, lack of information, 40, or mis- 
leading comparisons, 41. Its premiums 
are net, 42. Commercial companies load 
premiums for expenses, 43, sometimes re- 
turn "dividends" which reduce the net 
cost, 44, but not to that in the Teachers 
Association, 45, because of its net rate, 

46, and freedom from overhead charges, 

47, in addition to the suitability of its 
policies, 48. 

College annuities and salaries, 49, are, of 
course, related, 50; contributions require 



self-denial, 51, even if salaries are in- 
creased, 52, but they give certainty, 53, 
in case of retirement, 54, or earlier with" 
drawal, 55. 

Insurance agents are not needed by college 
teachers, 56, who are in institutional 
groups, 57, and accustomed to the studj 
of printed information, 58. The Teach- 
ers Insurance and Annuity Association, 
59, will provide full information, 60, and 
individual advice, 61. 

The Teachers Insurance and Annuity Asso- 
ciation, 62, was organized by the Car- 
negie Foundation, 63 ; its trustees are 
financiers, actuaries, and educators, 64. 
It assumes some of the work of the Foun- 
dation, 65, which will continue its free 
pensions for some fifty years, 66, and em- 
bodies the results of the Foundation's ex- 
perience, 67, and the desires of college 
teachers, 68, with a few striking excep- 
tions, 69. 

The real questions before college teachers, 
70, are not details but the fundamental 
needs of protection against premature 
death and dependence in old age, 71. 
Free pensions do not provide this pro- 
tection, 72. Inexpensive, joint, contribu- 
tory, contractual retiring allowances do, 
73. Leading institutions have recognized 
this fact, 74, and the Teachers Insurance 
and Annuity Association meets the need, 
75. 



The Limited Use of Insurance by 
College Teachers. 

College teachers as a group make but 
limited use of the facilities possible 
through the world's knowledge and ex- 
perience of life insurance. This is not 
due, primarily, to the modest scale of 
college salaries. Men whose families live 
on fixed salaries are precisely those who 
have most to gain by cooperation for 
their common protection and exactly 
those who stand in most need of some 
effective agency for promoting such co- 
operation. The inadequate participation 
in insurance by teachers is due partly to 
the lack of a form of insurance agency 
suited to their circumstances and partly 
to the tradition of extreme technicality 
which has grown up about the subject of 
insurance. The Teachers Insurance 
and Annuity Association was established 
to meet this situation by affording insur- 
ance and annuity contracts specially 
adapted to the circumstances of the 
teacher's economic situation and to afford 
him at the same time such information 
concerning these policies as will enable 
him to decide for himself the form of 
policy suitable to his needs and to his 
purse. 



The Advantages of the Teachers 
Insurance and Annuity Association. 

The essential advantages which it of- 
fers to the teacher as compared with 
ordinary agencies are these: 

1. Poh'cies in insurance and in 
deferred annuities that mutually supple- 
ment each other and are best adapted to 
the needs of one who expects to live on 
a moderate but fairly secure income. 
Some of these policies cannot be had in 
existing companies. 

2. These policies are free of over- 
head cost of management by reason of 
what is practically an endowment of 
$1,000,000, given In the form of capital 
and surplus of the Teachers Insurance 
and Annuity Association. The overhead 
cost absorbs on the average something 
like 20 per cent of all premiums paid by 
policyholders in the well conducted com- 
mercial Insurance company. A company 
so endowed can provide any stated form 
of insurance at a lower rate than one 
which must pay this charge out of the 
premiums of Its policyholders. 

3. Such a company cannot employ 
agents to convert teachers to an appreci- 
ation of these opportunities in the matter 
of life insurance and old age annuities. 
On the other hand, it deals with highly 



educated and intelligent men and 
women. They are not Isolated Indi- 
viduals but constitute groups in some 
hundreds of colleges scattered over the 
United States and Canada. It is thus 
possible to put Into their hands the In- 
formation necessary to decide what kind 
of insurance policy and what annuity con- 
tract is suitable to each IndivIduaL The 
knowledge of the elementary principles 
of insurance and annuities needed for 
such a decision is attainable by any intel- 
ligent man or woman who is willing to 
give the matter brief attention and does 
not trench upon the field of technical and 
legal questions involved In the operation 
of insurance companies and which have 
divided insurance authorities for a cen- 
tury. It may be safely assumed that the 
teacher's true Interest will be more surely 
served by this process than by leaving the 
choice of a policy to an insurance agent, 
often Innocent of any great knowledge of 
the subject, and who, however good his 
intentions, Is financially Interested In the 
form of the policy to be chosen. Policies 
designed to suit each teacher's needs, at 
a cost free of all overhead, chosen with- 
out any complication as to an agent's 
commission, characterize the service 
offered by the Teachers Insurance and 
Annuity Assooiatlon. 



Co-operation of the Great Insurance 
Companies. 

An insurance and annuity association 
upon the basis just described, offering 
its service to a limited group of profes- 
sional men and women, is clearly no rival 
to the established insurance agencies. 
The great insurance companies have 
recognized this fact and their experts 
have cooperated with advice and sugges- 
tions in the establishment of the Teachers 
Insurance and Annuity Association. To 
this rule there has been a notable ex- 
ception. The Provident Life and Trust 
Company of Philadelphia, (which as its 
name indicates is a combination of an 
Insurance Company and a Trust Com- 
pany) , has issued and is widely circulat- 
ing a pamphlet which, while containing 
various complimentary statements to the 
effect that "The Teachers Association is 
a fine conception . . . the general prin- 
ciples laid down for its guidance are 
sound. . . . The Carnegie Foundation 
has ably analyzed the two major con- 
tingencies facing the average man, etc.," 
is nevertheless, an unfriendly attack upon 
the policies offered by the Teachers 
Insurance and Annuity Association and 
an advertisement of its own wares. 

Any constructive social machinery 
newly established must expect not only 



criticism, but a certain amount of mis- 
understanding. Genuine criticism ought 
to be welcome and misrepresentation and 
distrust may safely be left to time and 
to fuller knowledge. The advantages 
offered to younger teachers In the in- 
surance and annuity contracts of the 
Teachers Insurance and Annuity Asso- 
ciation are so great that In time 
these policies will make their own 
way. When a man of 30 can by a pay- 
ment of $5.00 a month, in cooperation 
with his college, provide a retiring allow- 
ance of $1,000 a year at age 65, the 
social machinery necessary for his pro- 
tection against the haziard of dependence 
in old age has been brought within the 
reach of the great body of teachers. 

The pamphlet of the Provident Life 
and Trust critic might, therefore, well be 
left to time to answer had It been ad- 
dressed only to the company's agents and 
clientele. It has however been circulated 
In great numbers among college teachers. 

Under these conditions it seems desir- 
able to point out that the pamphlet of 
the Provident Life and Trust Company 
is so framed as to mislead those who are 
not familiar with the fundamental facts 
of life Insurance. 

The publication of this attack on the 
part of an old and established company 
is sought to be justified on the ground 



of certain general discussions of insurance 
which appeared in the annual reports of 
the Carnegie Foundation before the 
Teachers Insurance and Annuity Asso- 
ciation was born. The inadequacy of 
this reason will be appreciated by all 
who read the extracts quoted in the 
pamphlet itself from the reports of the 
Foundation. These set forth the fact 
that no attack upon endowment insur- 
ance is intended, that endowment pol- 
icies will in fact be offered by the Teach- 
ers Insurance and Annuity Association to 
those who find them suitable to their 
needs, but that the Teachers Insurance 
and Annuity Association was designed 
to .meet the needs of the modest salary of 
a teaoher. The typical college teacher 
begins with twelve to fifteen hundred 
dollars a year at somewhere between 
twenty-five and thirty years of age. He 
anticipates an active service of between 
thirty and forty years, during which his 
maximum salary will not exceed three 
or four thousand dollars. To one look- 
ing forward to such conditions of salary, 
whether his life be long or short, there 
are other methods of insurance better 
suited than tJhat of the endowment 
policy. This Is common knowledge to 
all insurance men. 

The actual circumstance that led up 
to this outburst on the part of an estab- 



llshed company can be appreciated best 
by a brief reference to life" insurance 
experience and history. Such a state- 
ment will enable teachers — who compose 
the only audience to which this paper is 
addressed — to gain not only a clear view 
of the immediate question under dis- 
cussion, but to appreciate why those 
seeking to meet the needs of the teacher 
for insurance and annuities found it 
necessary to establish a new agency for 
this purpose. 

Legitimate Life Insurance. 

Life insurance in its true conception 
is a device for protecting the dependents 
of the insured against the risk of his 
premature death. The simplest, most 
direct and cheapest method of meeting 
this purpose is through a policy covering 
the simple life risk and entirely analogous 
to a fire insurance policy. This original 
purpose of life insurance became involved, 
in time, with various plans for accumu- 
lating savings for the benefit of the 
insured. Some of these, like tontines, 
had a large speculative element. 

The various forms of policies whldh 
have been gradually evolved are the re- 
sultants of these two tendencies, but 
throug'hout this process these facts are 
prominent : Large numbers of men have 
been induced to insure only by solicitation 

.9 



of agents; hence arose the great com- 
mercial insurance organizations, financ- 
ially strong and rendering a great service 
to society, but offering policies w^hose 
forms were affected by two influences 
oftentimes antagonistic, — the first the 
sincere wislh to fit the policy to the needs 
of the insured, the second the necessity 
to offer a form of policy that would 
enable the agent to make a living. 

The teacher living on a professor's 
salary desires to protect his family during 
his income-earning period by insurance. 
He desires to provide year by year a sum 
of money which may afford him support 
after his income-earning power dimin- 
ishes or fails. The Teachers Insurance 
and Annuity Association proposes to ac- 
complish these two purposes by issuing 
two policies, one a term insurance policy 
to cover the life risk during the period 
of active service; the second, a deferred 
annuity contract to articulate with the 
Insurance policy. 

The actuary of the Provident Life 
and Trust Company refers to this ar- 
rangement as "hybrid" insurance and 
Insists that the teacher can do much bet- 
ter to take out a single long term en- 
dowment policy (presumably in the 
Provident Life and Trust Company) 
which shall provide insurance during the 
income-earning period of the teacher's 

10 



life and a sum of money at the end of 
that period as the basis of an old age 
annuity. The argument of the actuary 
of the Provident Life and Trust is based 
on the case of a man aged 30 who takes 
out a $10,000 endowment policy at that 
age to mature at age 65. For compari- 
son it will be useful to follow the same 
illustration, though few teachers at age 
30 on the typical teacher's salary can 
afford to take out $10,000 endowment 
policies. 

A man aged 30 who takes out a thirty- 
five year endowment policy to mature at 
age 65 will either die during the interval 
of thirty-five years, in which case he 
will avail of his insurance and lose the 
benefit of his accumulations, or he will 
live to the end of the thirty-five year 
term, in which case he will have had 
the protection of his insurance and can 
avail of his accumulations augmented by 
a share in the payments of those who 
have died. We will examine the two 
contingences separately. 

The Benefits of the Endowment 

Policy in case of Death before 

Maturity. 

The endowment insurance policy is a 
survival of the tontine regime in life in- 
surance. "A pure endowment policy is 
one payable only to those who live to 

11 



complete the endowment period. Those 
that die before the end of that period re- 
ceive nothing. Regular endowment in- 
surance provides for the payment of the 
full amount of the policy to the bene- 
ficiaries of any who die during the en- 
dowment period and to those policyhold- 
ers who live until the end of the period. 
•The endowment insurance policy is 
therefore merely a combination of term 
insurance and pure endowment. Under 
the former those who die during the 
period are paid, and under the latter 
those who live to the end of the period 
are paid. The net annual premium of 
a twenty-year endowment policy consists 
of the net annual premium of a twenty- 
year term policy plus the net annual pre- 
mium of a twenty-year pure endow- 
ment."* The term policy is pure insur- 
ance, the endowment pure tontine. The 
combination of the two which produces 
the endowment insurance policy might 
fairly be called a "hybrid." 

For the simple reason just stated -any 
man who purchases an endowment insur- 
ance policy and who dies before the ma- 
turity of the endowment is bound to pay 
too much for the protection he has re- 
ceived since he is paying for two benefits 
and in case of death his family can re- 



*The International Encyclopedia. 
12 



ceive only one. If a man of 30 takes out 
an endowment policy for $10,000 to ma- 
ture at age 65 and dies during the 35 year 
interval, he has been paying for a thirty- 
five year term insurance policy and for a 
thirty-five year pure endowment policy. 
If he dies his family realizes only on the 
term policy. In the Teachers Insurance 
and Annuity Association a man of 30 can 
buy a $10,000 term policy ending at 
age 65 for a net annual premium of $122. 
A $10,000 endowment insurance policy 
will cost on the same net basis $219, both 
including waiver of premium in case of 
disability. One who bought a straight 
term policy and put the $97 difference 
into an annuity contract and who died 
in his sixty-fourth year would leave his 
dependents over $17,000 from the two 
benefits as compared with $10,000 from 
the endowment policy. The man who 
buys an endowment policy over a long 
term does so with the certainty that if 
he dies before its maturity he has been 
paying for two benefits while his bene- 
ficiaries can receive only one. 

Of one hundred men who take out 
endowment policies at age 30 to mature 
at age 65, more than forty* would die 
before the maturity of the policy. Forty 
out of one hundred are certain to pay too 

*Ainerican Mortality. 
13 



much for the insurance benefit they 
receive. What a man really does in 
buying such a policy is to speculate on the 
chance that he will live to the maturity 
of the policy, in which case his endow- 
ment will be helped out by the deaths of 
others which have occurred during the 
long interval. The teacher who starts 
with a salary of $1,500 a year and whose 
maximum income is not likely to exceed 
$4,000 cannot afford to speculate on this 
possibility. 

'""The process by which the writer of the 
Provident Life and Trust pamphlet con- 
trived to obscure these essential facts is 
ingenious. During this part of his dis- 
'tussion he avoids quotation from the a'c- 
tual rates published in the Handbook of 
the Association and proceeds to recompute 
the deferred annuity on a 35^ per ceiit 
basis. He shelters himself behind the 
statement "This basis provides the small- 
est net life insurance premiums permitted 
by the law." The authot is, of course, 
aware that the maximum rate for annui- 
ties is four per cent and that this is one 
reason for separating the annuity contract 
from the insurance contract. The annual 
premium of $244, which he uses is, there- 
fore, purely fictitious and is much higher 
than the rate quoted for the two policies 
in the Handbook of the Teachers Insur- 
ance and Annuity Association. 

14 



The Combination of Insurance and 
Annuity. 

To set forth the actual facts there 
was need simply to quote the rates 
given on page 96 of the Handbook. 
On this page is given an illustration of 
the comlbination of a $10,000 decreasing 
policy with a deferred annuity contract. 
The decreasing policy has three great ad- 
vantages: it has a constant premium, 
the annual decrease in the face of the 
policy after age 40 goes on coincidently 
with the rise in the deferred annuity 
accumulations, and in the third place, 
the policy is full paid at age 65 and pro- 
vides cash payment at death. In the 
illustration given on page 96 the de- 
creasing policy begins at age 30 with 
$10,000. It remains at this level till age 
41, when it begins to diminish $300 an-r 
nually. At 65 the insured has finished 
all payments and still has $2,500 of 
insurance in case of death. At age 70 
and thereafter it remains at $i,000, pay- 
able at death. 

On page 96 of the Handbook from 
which the writer of the Provident Life 
pamiphlet might have quoted is shown 
the working of a combination of this 
policy on a monthly basis of $8.58 with a 
deferred annuity policy whose cost per 
month is $10, one-half of which is paid 

15 



by the college. The total monthly cost 
is $18.58, the cost to the teacher $13.58. 
These monthly payments would aggre- 
gate in the year $222.96 ($220.23 if the 
insurance premium is paid annually) or 
to the teacher $162.96. If the insured 
dies during the period between 30 and 
65, he receives both benefits which, as 
is clearly shown on page 96, will al- 
ways be in excess of $10,000 and for 
a great part of this time will be in 
excess of $11,000 and at its maximum 
$11,560. The argument of the author 
of the Provident Life pamphlet that there 
is an advantage to the insured in keeping 
the total protection at exactly $10,000 is, 
of course, pure moonshine. There is no 
possible objection to an arrangement that 
provides for the widow of a teacher $11,- 
500 insurance at the time when the 
responsibilities of a growing family are 
heaviest instead of an exact $10,000. The 
widow and her dependent family will 
find no fault with the extra $1,500. 
The essential facts are perfectly clear. 
There is no way by which the teacher 
may have the benefit of his insurance 
policy and of his saving accumulation 
during the long period of his active life 
except by putting them in separate con- 
tracts. The Teachers Insurance and 
Annuity Association does this, the Provi- 
dent Life does not, but for the reasons 



which will be made clear. We turn now 
to the case of the survivors of the endow- 
ment insurance policy. 

The Benefits of the Endowment 

Insurance Policy for those who 

Survive to its Maturity. 

In his discussion of this contingency 
the author attempts to produce the im- 
pression of superiority of his own wares, 
by comparing the two plans under con- 
ditions in which the benefits are widely 
different, a fact not apparent to the read- 
er unless he is familiar with the compu- 
tation of policy rates. The comparison 
purports to be one as between a $10,000 
Endowment Insurance Policy issued by 
the Teachers Insurance and Annuity 
Association itself with the combination 
of a decreasing insurance policy and a 
deferred annuity contract, also issued by 
the Teachers Insurance Association. 
The argument is in the "out-of-your- 
own-mouth I condemn you" form and 
would be significant if true. It is best 
to quote the exact language of the 
writer : 

"For example, from page 99 of the 
Teachers Association Handbook, we 
learn that $8.58 is the monthly premium 
at age 30 for the Association's $10,000 
decreasing insurance policy. From Table 

17 



II on page iii we compute that $ii.o8 
is the Association's monthly savings fund 
premium to accumulate $io,cxx) in 35 
years. The two together, therefore, 
amount to $19.66. From page 109 we 
learn that the monthly premium at age 
30 for the Association's $10,000 En- 
dowment at 65 is $18.80. On the year- 
ly basis, therefore, the published rates 
appear to indicate that the combination 
costs but about $10 more than the en- 
dowment." 

Upon the non-technical reader this 
statement produces only one impression, 
namely, that the combined monthly 
premiums of the decreasing insurance 
policy and the annuity contract amount- 
ing to $19.66 exceed the monthly 
premium of the corresponding endow- 
ment policy by $0.86 and that, there- 
fore, on the yearly basis "the com- 
bination costs but about $10.00 more 
than the endowment." The reader will 
naturally assume that the two sets of 
figures refer to similar benefits, sinc^ 
otherwise there can be no significance in 
the comparison. Unless he is accustomed 
to such comparisons he will not discover 
that the decreasing insurance policy re- 
ferred to above is full paid at age 65 and 
has a cash surrender value at that time of 
$865.00 which the author has coolly 
neglected in his comparison. Nor will 

18 



it occur to the reader to reflect that 
during the whole period between age 30 
and age 65 the insured has had under 
the combination of policies a protection 
in excess of Ji 0,000 and amounting dur- 
ing a part of that time to as much as 
$12,500. The net cost of this extra 
insurance (which is of great advantage 
during the active period of early life) 
is $800. In other words, the comparison 
quoted above is so worded that the reader 
is not likely to realize that the combi- 
nation that cost $19.66 a month carried 
$1,665 of benefits in excess of the endow- 
ment policy that cost $18.80 a month. 
It goes without saying that when the 
$1,665 of additional benefits are included 
in the computation so as to make the two 
proposals comparable the quoted higher 
rate of the combined policies disappears. 
A monthly payment of $10. 1 2 will at 
the end of 35 years produce at four per 
cent a guaranteed accumulation of $9,- 
136.89. If the teacher then avails himself 
of the cash surrender value of his full 
paid insurance policy (which it would be 
much against his interest to do) he would 
have a cash endowment for the purchase 
of an annuity of $10,001.89 and he would 
have paid at the monthly rate of $18.70 
(not $19.66 as given above). In ad- 
dition he would have enjoyed during the 

19 



whole 35 years a protection in excess of 
$10,000. That protection would have 
amounted at its maximum to $11,700. In 
other words under the two policies, the 
survivor would have his endowment of 
something over $10,000 with which to 
purchase an annuity at age 65, he would 
have received in addition $560 worth of 
extra insurance and the cost would have 
been at the monthly rate of $18.70. Put 
in tabular form the comparison stands as 
follows, when both policies are upon ex- 
actly the same basis: 



Policy and 


If the insured 


If the insured 


Monthly Cost 


dies before maturity 


survives to matunty 


Kndowment 






$18.80 


$10,000 


$10,000 


Combination 


Minimum 


$10,002 


$18.70 


$10,000 


or 




Maximum 


9,137 




$11,700 


with full paid 

insurance as 

follows : 

at 65.... $2,500 
66.... 2,200 
67.... 1,900 
68.... 1,600 
69.... 1,300 
70 and 
after 1,000 



In other words even for the survivor 
of the endowment period the combi- 



20 



nation offered by the Teachers Insurance 
and Annuity Association is better than 
the Single Endowment policy. 

The method by which the author of 
the Provident Life and Trust pamphlet 
seeks to produce the opposite impression 
consists in stating the full benefits of his 
own plan while omitting some of the 
benefits of the other. The figures he 
quotes are technically correct. The 
monthly costs which are compared — 
$18.80 on the one hand and $19.66 on 
the other — are taken from the Handbook 
of the Teachers Insurance Association. 
They refer, however, to entirely different 
benefits, a fact which the author studi- 
ously omits to point out, and which the 
lay reader will not discover unless his 
attention is drawn to it. One feels a 
genuine sense of disappointment and 
regret that an old and established com- 
pany should feel it necessary to conduct 
its propaganda upon this plane. 



21 



The Reasons for Separating tlie 

Insurance Contract from the 

Annuity Contract. 

Every consideration of the interest of 
the teacher living on fixed salary lies on 
the side of separating his insurance 
policy from his annuity policy. The 
principal reasons may be summed up as 
follows : 

1. The man who buys endowment in- 
surance is certain to pay more for his 
protection than the risk is worth if he 
dies before the completion of the endow- 
ment period, since he pays for two bene- 
fits and can realize only on one. 

2. Under the law the maximum rats 
of interest on an insurance contract is 
33^ per cent, while the deferred annuity 
contract may be on a 4 per cent basis. 
The teacher thus obtains a larger guar- 
anteed result for his deferred annuity 
contract by having it separate. 

3. To take out an insurance policy 
requires a medical examination, to take 
out a deferred annuity contract requires 
no medical examination. 

4. Under an endowment policy cov- 
ering a long term the proportions of in- 
surance and investment are arbitrarily 
fixed. In most cases a teacher will desire 

22 



to change his proportion of insurance to 
annuity accumulation as his age and 
financial circumstances change. For ex- 
ample, with increasing salary he will in- 
crease his annuity accumulation, or, on 
the other hand, In case of disability he 
will desire to avail of his annuity at an 
earlier age 'but to continue with his in- 
surance. Under an endowment insur- 
ance policy It is not possible to provide 
these variations which the teacher is 
certain to desire and which it Is the object 
of the Teachers Insurance Association 
to provide. 

5. No life insurance company can 
under the New York law issue an endow- 
ment policy guaranteeing that the pro- 
ceeds may be invested in any life an- 
nuity upon terms as favorable as the 
Association's rates based upon the Mc- 
Cllntock Table with 4 per cent interest. 

6. Colleges recognize their obliga- 
tion to join with their teachers in con- 
tributions to a deferred annuity policy, 
but for obvious reasons they do not con- 
tribute toward the premiums of Insur- 
ance policies. 

All of these considerations weighed In 
the decision of those who were respon- 
sible for the forms of policies adopted 
by the Teachers Insurance and Annuity 

23 



Association. The policies were planned 
always from the point of view of the 
teacher living on salary, not from the 
point of view of one who has additional 
financial resources. 



The True Origin of Unfriendly 
Criticism. 

It remains to point out briefly why 
the Provident Life and Trust Company 
does not recommend the combination of 
term insurance and deferred annuity to 
its own policyholders. The reason is 
simple. The Provident Life and Trust 
Company cannot afford it. The terra 
policy is the cheapest and simplest form 
of insurance, and, therefore, yields the 
smallest commission for the agent. 
Furthermore, the Provident Life and 
Trust (as is the common practice in in- 
surance) discriminates against this form 
of insurance by allowing for the agent's 
commission a much smaller percentage of 
the actual premium than that paid on an 
endowment policy. Neither the company 
nor the agents could afford to put any 
large proportion of its business into term 
insurance policies however the insured 
might prefer them. The difference in 
the point of view of the Teachers Insur- 
ance and Annuity Association and that 

24 



of the Provident Life and Trust Com- 
pany lies in the fact that the former 
can afford to recommend to the applicant 
for insurance whatsoever policy best 
suits his circumstances and needs with- 
out involving the question whether the 
agent can make a living. The latter 
cannot. 

The Justification for Endowment 
Insurance. 

It ought still to be said that endow- 
ment insurance serves a useful purpose in 
the economic problems of many thousands 
of insured, notwithstanding the fact that 
during the entire life of the policy 
the insured is paying for two benefits 
while he can realize on but one. The 
reasons are mainly two — one has to do 
with insurance, the other with human 
psychology, and in insurance, as in most 
of the affairs of life, the latter factor 
cannot be ignored. 

The endowment policy serves the real 
interest of the insured when it provides 
simultaneously for insurance during the 
income-earning period of his career and 
a fund against the needs of old age. 
The other reason is that expressed by 
the average man when he says, "If I 
hadn't taken out an endowment policy, 
I wouldn't have saved anything." As 

25 



a compulsory saving device the endow^- 
ment policy has justified itself in many 
thousands of cases. This argument, 
however, has been w^eakened of late 
years by the grov^^ing habit of borrowing 
on policies, to which the endowment 
policy lends itself most readily. By this 
means the very purpose of insurance is 
defeated. The growing prevalence of 
this practice is giving grave anxiety to all 
insurance authorities.* For the man who 
has a large salary or who has other re- 
sources than salary the endowment insur- 
ance policy may be justified. It is not 
suited to the man living on a teacher's 
salary. 

Why is the Teachers Insurance Asso- 
ciation not a "Mutual" Company? 

The writer of the Provident Life and 
Trust pamphlet is disturbed that the 
Teachers Insurance and Annuity Asso- 
ciation is not a mutual company issu- 
ing participating policies. He writes, 
"If the policyholder is to receive his in- 
surance at actual cost the surplus must 
eventually be distributed. The surplus 
under the policies of the Teachers As- 
sociation will undoubtedly be large, and 
we see no valid reason why the contracts 

* Huebner's Life Insurance, pp. 242-3. 
26 



should not provide for participation un- 
less it is desired to withhold the surplus 
from the control of the teachers." 

The actuary who prepared this 
pamphlet is quite aware of the difficulties 
in the way of starting a new Mutual 
Company but his question has very 
naturally been in the minds of many 
teachers. 

The reasons have been set forth in the 
Reports of the Foundation but they may 
be re-stated in a few words. They are 
summed up in two simple facts : 

1. It is practically impossible to 
start a. new mutual insurance company 
under the New York State Laws. 

2. It was found to be entirely to the 
interest of the future policyholders to 
incorporate the Teachers Insurance As- 
sociation as a stock company with non- 
participating policies. 

These conclusions were reached after 
many months of study and with the aid 
of the best legal and expert advice, 
Including that of the experts of the of- 
fice of the Superintendent of Insurance. 
Let us consider each proposition in turn. 

Practical Difl&culties. 

The insurance laws of the State of 
New York as well as those of other 
neighboring states have become, since the 

27 



insurance investigation of 1906, extreme- 
ly detailed and exacting. The various 
laws touching insurance regulation in 
the State of New York fill a large vol- 
ume and he would be a bold man who 
undertook to find his way through these 
complicated enactments without expert 
assistance. This legislation is intended 
to be in the interest of the policyholder 
and in the main it is in his interest. 
The law had in mind, however, the 
commercial insurance company and its 
relations to its policyholders. It did not 
contemplate the case of a company which 
undertook to relieve the policyholders of 
the cost of management. 

Section 97 of the Insurance Law of 
New York provides that no domestic 
Life Insurance Corporation shall in any 
calendar year expend or become liable 
for (on account of the various expenses 
incurred in its operations) a sum in 
excess of the aggregate amount of the 
actual loadings upon premiums received 
and assumed mortality gains. It is fur- 
ther provided that this j)rohibition shall 
apply to all amounts which any person, 
firm or corporation is permitted to ex- 
pend on account of any such domestic 
life insurance corporation. 

With respect to the limitations thus 
placed on the expenses of a new company 
the opinion of the Superintendent of 

28 



Insurance was stated In the following 
quotation: "It Is a fact that under the 
provisions of that Section It would be 
practically impossible for a newly organ- 
ized life Insurance company on the 
mutual plan to keep within the limits 
presented by that Section." 

Not only would It be necessary to 
expend a far larger sum than could 
possibly be realized at the beginning 
from the loadings in premiums but it 
was especially desirable to pay these 
expenses out of funds provided by an- 
other corporation so that policies might 
be issued, without loading and at net 
rates. The law provides a way for 
carrying out this purpose by exempting 
from the provisions of Section 97 "stock 
corporations issuing and representing 
themselves as issuing non-participating 
policies exclusively." 

All authorities agreed that the greatest 
contribution that could be made to the 
establishment of an Insurance and 
Annuity Company intended to serve 
teachers would be accomplished by pro- 
viding what is practically an endowment 
from the income of which the overhead 
cost of managepient shall be met. This 
arrangement accomplishes two great ends 
— It relieves the policyholders of the cost 
of management and makes possible the 
Issuing of policies at the net legal rate 

39 



free of any loading whatever* In order 
to be free from the limitations imposed 
on the expenditures of a mutual company 
and to issue policies free of loading, it 
was necessary that the company should 
be a stock company and that its policy 
contracts should be what are known as 
non-participating. That is to say, the 
policies issued by the company must 
contain no assurance of participation in 
any earned surplus available for distri- 
bution. 



Advantages and Weaknesses of 
Mutualization. 

This situation compelled those who 
were engaged in the effort to solve the 
problem of the teacher's protection to 
go carefully into the question, are there 
advantages to the policyholders in mu- 
tualization and in participating policies 
sufficient to counterbalance the great ad- 
vantages to he gained by a form of or- 
ganization that permits overhead cost 
to be paid out of what Is practically 
an endowment? In other words, — what 
is Mutualization and what does it ac- 
complish for the policyholders? 

In the field of life Insurance as in that 
of politics we become oftentimes the par- 
tisans, and sometimes the servants, of 

30 



phrases, which we treasure with real 
emotion but whose actual meaning as 
applied to our own conditions we often 
fail to ascertain. The term "democracy," 
for example, is on all lips but it may, 
according to the temperament of the in- 
dividual, mean anything from a free gov- 
ernment resting on constitutional guar- 
antees to an autocratic class rule resting 
on force. The words "mutual" and 
"participating" are discussed in much the 
same temper as a sort of charter to the 
policyholder confirming his essential 
rights and privileges. Just what does 
mutualization and what does the partici- 
pating policy secure for the policy- 
holder? 

The argument as to the relative merits 
of the mutual and of the stock company 
methods of organizing and managing life 
insurance business has gone on for many 
years. The advantages claimed for the 
mutual plan are these: First, no divi- 
dends are paid to stockholders; secondly, 
the company is controlled by the policy- 
holders in such manner as they conceive 
to be in their own interest; thirdly, the 
insured will in time receive his insurance 
at actual cost through the return (in the 
form of so-called dividends) of such 
charges as are found to be unnecessary. 



31 



Organization of the Teachers Insur- 
ance and Annuity Association. 

With regard to the first of these 
advantages claimed for the mutual com- 
pany, it may be said that the stock of the 
Teachers Insurance and Annuity Associa- 
tion is held by the Carnegie Corporation 
of New York, a charitable corporation 
which has already shown its interest in 
the cause by contributing one million 
dollars for the capital and surplus of the 
Teachers Insurance and Annuity Asso- 
ciation. The stockholders are prohibited 
by the Charter from using any of the 
surplus of the company for profit to 
themselves. In this respect the Teachers 
Insurance Association is on the same basis 
as a mutual company. 

The claim that the policyholders of 
a mutual company control it is purely 
fictitious as is clearly shown in any 
elementary book on insurance. It is 
impossible for hundreds of thousands of 
policy holders scattered over a continent 
to participate in the government of such 
a corporation and it has never been done. 
On the other hand, the Carnegie Cor- 
poration of New York, recognizing the 
need for a real representation of the fu- 
ture policyholders in the government of 
the company, when it paid over to the 

S2 



Teachers Association the one million dol- 
lars, passed the following resolution: 

"Resolved — That it is the inten- 
tion of the Carnegie Corporation of 
New York, whenever a group of poli- 
cyholders has been secured sufficiently 
large to be representative of the college 
and university teachers of the United 
States and Canada, in conference with 
the interested parties to provide ma- 
chinery by which the policyholders, 
through representatives selected by 
them, shall participate in the election 
of the trustees who manage the Asso- 
ciation." 

So far as the actual representation of 
the policyholders is concerned, therefore, 
the Teachers Insurance Association rep- 
resents a new and promising effort to 
furnish a real, not a fictitious repre- 
sentation. In this matter it is in advance 
of the Mutual Company. 

The single point that remains and 
which forms the only basis of the demand 
that the Teachers Insurance Association 
should be mutualized is that feature of 
the Mutual plan which provides for dis- 
tribution of surplus. 



33 



Participating and Non-participating 
Policies. 

While mutualization as a form of gov- 
ernment of a Life Insurance Company 
is open to very grave criticism, mutuali- 
zation as a principle of returning to 
policyholders any surplus, not needed for 
expenses or for their legitimate protec- 
tion, is a thoroughly just and sound one, 
although the practical methods of de- 
termining what part of this surplus is 
"divisible" and of determining the meth- 
ods by which it shall be apportioned 
among the various classes of policyhold- 
ers are still matters of wide difference of 
opinion and of practice. 

Every insurance company must retain 
a surplus over and above its reserves for 
the protection of its policyholders against 
contingencies — for example against low 
interest rates or unusual mortality of 
which the recent influenza epidemic was 
a notable example. At the outbreak of the 
world war some of the more conservative 
companies cut down dividends. The pos- 
session of a considerable surplus is there- 
fore always necessary for any company 
to guard against contingencies. The 
amount of this surplus retained from 
premiums and not divided with the 
policyholders depends somewhat on the 
management of the particular company. 

34 



The superintendent of agencies is likely 
to insist on large dividends so that his 
agents can make a good showing in com- 
petition with other companies. The act- 
uary's office is the conservative influence 
generally insisting on a sound surplus 
against all contingencies. According as 
a life insurance company is the more 
affected by one or the other of these in- 
fluences it is likely to be conservative or 
liberal in its interpretation of the term 
"divisible" surplus. Over both stands 
the Superintendent of Insurance. 

The method of determining ''divisible" 
surplus will be exactly the same in a stock 
company as in a mutual company, while 
a company which neither paid dividends 
to its stockholders nor used any of the 
premiums of the policyholders to pay 
cost of management would naturally 
have a margin of "divisible" surplus 
larger than the commercial company 
whether it does business on the mutual 
plan or on the stock plan. 

What guarantee does the holder of a 
participating policy in a mutual company 
have as to dividends? 

The man who does not read his policy, 
and few policyholders do, is under the 
Impression that he has a contract for 
future "dividends." This is a misap- 
prehension. The very principle of the 
mutual company is that the company 

35 



may call on the policyholder for the full 
loaded premmm if it finds it necessary 
or desirable tD do so. What the policy 
does contain is an agreement that the 
policy designated as participating shall 
share, in its due proportion, in any "di- 
visible" surplus the company may dis- 
tribute. Future dividends can not be 
made contractual. The stock company 
writing non-participating policies will 
deal with any actually earned surplus 
which is "divisible" in exactly the same 
way. It is not permitted under the 
law to promise in advance to distrib- 
ute any "divisible" surplus, but when 
such surplus has been accumulated it 
may distribute it either by dividends or 
in such other way as the law may per- 
mit. This has been the practice of such 
companies in the past. 

It is distinctly stated in the Charter of 
the Teachers Insurance and Annuity 
Association that the purpose of the cor- 
poration shall be "to provide insurance 
and annuities for teachers ... on 
terms as advantageous to its policyhold- 
ers as shall be practicable; and to con- 
duct its business without profit to the 
corporation or to its stockholders." 

By incorporation in its present form 
the Teachers Insurance and Annuity 
Association secured to its policyholders 
these great advantages: 

36 



1. Freedom from overhead cost which 

absorbs some twenty per cent of 
the premiums of policyholders. 

2. Policies having no loading and is- 

sued at the lowest net rate which 
the law will permit. 

3. An opportunity to work out in the 

future a real participation of the 
policyholders in the government 
of the Association. 

Was it in the interest of the future 
policyholder to forego these great ad- 
vantages in order to put into his policy 
an agreement that it should share in 
any distribution of future surplus which 
the Company determined to be 'divis- 
ible"? Such action would have sac- 
rificed great and enduring advantages 
for a phrase which has come to have an 
exaggerated importance in the eyes of 
the general public and which ignores the 
fact that the real security for the policy- 
holder depends not on the promise of 
participation in future dividends, which 
no one can estimate in advance, but on 
the strength and security of the com- 
pany, on the fidelity and ability of those 
who conduct it and on the nature of the 
scrutiny to which the operations of the 
company are subjected by the public 
authorities. Responsibility and public- 
ity are the foundations of the future 

37 



"divisible" surplus, not the form of 
organization of the insurance company. 
While the stock company writing non- 
participating policies may not promise 
such distribution in advance, once a sur- 
plus Is earned the question of its "divis- 
ibility" is the same whether the Com- 
pany be organized in the one way or in 
the other.* 

There is a valid reason why the 
great insurance companies with their 
enormous accumulation of funds in re- 
serves and surplus should not be stock 
companies. The stock of such companies 
are at the mercy of contending financial 
interests which seek to control them. 
Some of the large companies have en- 
countered serious misfortune in the past 
from this source** and such a situation 
lends itself to a constant danger of man- 
ipulation by stockowners whose interests 
are not primarily those of the policy- 
holders. The policyholders of the 
Equita:ble Company acted wisely when 
they mutualized that company two years 
ago by retiring the stock, even though 
they paid two and a half million of dol- 



* The foregoing distinction between control 
of companies by stockholders and by policy- 
holders has not proved of much importance 
in the past. Huebner, page 319. 
**YaIe Readings in Insurance, pages 299- 
300, 

98 



lars for $100,000 par value of 7 per cent 
stock.* That action removes the possi- 
bility of manipulation by stock control, 
but it will not put the control of the 
company into the hands of the policy- 
holders. It Is this situation which has 
made the mutual form of organization 
the predominant one In the United 
States. In England and In Canada for 
example the stock company form of or- 
ganization predominates. 

OTHER MISAPPREHENSIONS 

The long suffering college professor 
has been memorialized not only by the 
Provident Life and Trust Company but 
by certain amateur exponents of the 
theory and practice of life Insurance, 
who are also critical of the Teachers In- 
surance Association — its policies, its 
trustees, and Its relation to the Carnegie- 
Foundation. The misapprehensions con- 
tained In these publications are found- 
ed mainly on lack of knowledge either 
of the facts or of the legal and technical 
details which entered Into the establish- 
ment of a new Insurance agency. Most 
of these misunderstandings will vanish 

*The policyholders of the Prudential paid 
nearly seventeen million dollars to retire 
capital stock the par value of which was 
slightly less than two million dollars. 

39 



as younger teachers — who are those most 
interested in the policies of the Teachers 
Insurance Association — come to under- 
stand the unique opportunities that 
these policies afford them. It is natur- 
al, however, that the teacher who has 
not hitherto given serious attention to 
insurance should be somewhat confused 
when he finds himself confronted with 
the statement that he can obtain quite as 
good facilities for his protection and for 
that of his family through fisting in- 
surance companies as through the Teach- 
ers Insurance and Annuity Association. 
If this were true there would be no 
sufficient reason for the existence of the 
Teachers Insurance Association. Exact- 
ly the opposite is true — the teacher can- 
not obtain in any exi^st^ng insurance 
organization policies so suited to his 
needs or at such rates as he can obtain 
from an agency designed to serve his 
particular group, which is free of all 
overhead cost, which is by the terms of 
its charter prevented from accepting any 
profit for its trustees or its stockholders 
and is committed to the principle of 
offering insurance and deferred annui- 
ties to its policyholders "on terms as 
advantageous as shall be practicaJble." 

The teacher sincerely seeking to find 
his way to a solution of the problem of 
his own protection will find his doubts 

40 



still further Increased when he is con- 
fronted with figures which purport to 
be quotations from the offerings of cer- 
tain Insurance companies and which upon 
their face seem comparable in cost with 
similar policies in the Teachers Insur- 
ance Association. Unless the exact con- 
ditions attaching to each policy are fully 
stated such comparisons may be made 
on paper as would deceive the very 
elect.* Any comparison of policies is 
likely to be misleading which is not 
based on an actual examination of the 



* For example, there was printed in one of 
the memorials addressed to college teachers 
the following comparison of annuities pur- 
chasable at age 65 for $1,000: 

Amount of Annuity 

Teachers Insurance Association... $113.24 

Metropolitan 116.92 

Prudential 112.61 

A footnote attached to the last two com- 
panies contained the word "Annual," but 
did not convey to the reader the fact that 
the last two policies covered a form of an- 
nuity that began a year, rather than a month, 
after the teacher's retirement. The compara- 
ble figures, equally accessible to the author 
of this statement, are as follows: 

Amount of Annuity 

Teachers Insurance Association... $114.24 

Metropolitan 111.00 

Prudential 108.84 

41 



policies themselves. Few college teach- 
ers are in a position to do this, but the 
whole subject may be made clear by 
a brief statement of the method by 
which rates are determined in the regu- 
lar life insurance companies and the his- 
tory of the typical policy in a sound, well 
administered commercial company. 

All life insurance policies are based 
upon a net rate fixed by legal require- 
ments as to the assumed interest and the 
assumed mortality; the interest, 3^ 
per cent,* the assumed mortality that 
of the American Table of Mortality. 
This is the lowest net rate that can be 
assumed, and is the rate offered in the 
policies of the Teachers Insurance and 
Annuity Association. For example, at age 
30 the net rate per $i,ocx> for an ordi- 
nary whole life policy with disability 
benefits is $17.40, and this is the rate at 
which the Teachers Insurance Associa- 
tion would issue such a policy. The 
contract provides that this rate shall 
never be increased, but it contains no 
promise that the policyholder shall have 
the benefit of any distribution of future 
surplus that may result in the operation 
of the company. 

The ordinary good commercial com- 

*Som€ insurance companies prefer to 
reckon their reserve liability on the very 
conservative basis of 3 per cent. 

42 



pany issuing this same policy will start 
from the net rate of $17.19 for insurance 
plus 2 1 cents for disability benefits and 
add a loading of from 30 to 35 per cent, 
so that the policy will be issued at about 
$22.62, and the company collects from 
the policyholder at this rate every year 
in the future, returning at the end of 
the year what it is willing to allot as a 
dividend. 

If one follows the history of this 
policy in any good company it will be 
found to be approximately as follows: 
After the first year the policy will re- 
ceive the benefit of dividends — in other 
words, a return of part of the premium. 
These arise from three sources. The 
loading is generally greater than the 
cost of management, so that a part of 
the loading can be returned. Most com- 
panies realize more than 3 5^ per cent 
on their investAients and most companies 
have a mortality experience below 'the 
expectation of the American Table. 
From these three sources therefore arises 
what is called a dividend apportioned 
to policies upon a basis under which the 
dividend increases with the age of the 
policy. Consequently the net cost will 
diminish as the age of the policy ad- 
vances, and if the policy remains in 
force over a long period the actual cost 
will approach the net rate. In the or- 

43 



dinary good companies it will require 
from fifteen to twenty-five years for the 
net cost to get down to the net rate. 
Evidently a company that can combine 
an economical management, a high in- 
terest rate and a low mortality over a 
long term of years will be able to fur- 
nish insurance at a lower cost than a 
company less favorably situated. Pre- 
dictions for the future based on excep- 
tional conditions in certain companies 
are, however, likely to be misleading. 
For example, a company by a very strict 
medical examination and by extensive 
solicitation that brings in a great num- 
ber of young lives may be able to make 
an extraordinary showing in its mortal- 
ity experience for a period of years, but 
estimates based on this showing and pro- 
jected into the distant future are likely 
to be disappointing. The experience of 
the oldest, strongest conservative Amer- 
ican companies that have been operating 
through a period covering two genera- 
tions indicates that an overhead cost of 
1 8 to 22 per cent, an interest rate of 
somewhere between 4j^ and 5 per cent, 
and a mortality of approximately 70 per 
cent of the expectation are as good con- 
ditions as are likely to be realized over 
long periods of time. Projecting the 
favorable experience of a few years into 
predictions for the future in the solicita^ 

44 



tion of insurance is in some states pro- 
hibited by statute. 

One may therefore assume that at 
some period, which probably will be be- 
tween 15 and 20 years, the loaded policy 
rate will come down by the application 
of dividends to the net rate. This is, 
however, longer than the life of the aver- 
age policy. In other words, the average 
policyholder will not see his actual 
premium come down to the level of the 
net rate. 

If the policy remains in force beyond 
this period and the interest rate and 
mortality remain satisfactory the pre- 
mium diminished by dividends will fall 
below the net rate by an increasing 
amount as time goes on. This circum- 
stance has been used to create a certain 
amount of confusion. In any group of 
teachers who discuss this matter there is 
likely to be some one who has a policy 
purchased thirty or forty years ago and 
whose annual cost is at this moment well 
below the net rate of the same policy in 
the Teachers Insurance Association. Al- 
most is such an one persuaded that this 
cherished policy is already a source of 
income. 



45 



Advantages of the Teachers Insur- 
ance and Annuity Association. 

It still remains true that even in the 
long lived policy the teacher will have 
a great advantage in buying his insurance 
or his annuity from the Teachers Insur- 
ance Association entirely aside from the 
fact that some of its policies are not du- 
plicated in existing companies. 

The reason is extremely simple and 
includes but two considerations. The 
owner of a long-lived policy forgets the 
number of years which elapsed before 
his policy came down to the net rate. 
In only a few cases and those in policies 
of very long life will the average cost 
of the policy be below the net legal rate. 
In such comparisons also it seldom hap- 
pens that the interest on the excess paid 
in earlier years is taken into account. 
In a comparison made of a $io,000 
twenty payment life policy in a com- 
pany whose interest rate and mortality 
had been among the most favorable and 
assuming similar favorable dividends for 
the future (a very large assumption) 
the following is the comparison with 
the net rate. The first year the loaded 
policy costs $93 more than the net rate, 
at the 15th year the loaded rate as 
affected by the assumed dividends would 
reach the level of the net rate, at the 19th 

46 



year the net rate would exceed the load- 
ed rate as affected by the assumed divi- 
dends by $40. Allowing 4 per cent in- 
terest on all balances, whether in favor 
of one policy or the other, at the end of 
20 years there would be a balance of 
$250 in the total payments in favor of 
the policy issued at net rate as against 
the loaded policy affected by the extraor- 
dinarily favorable dividends assumed. 

The second consideration is this. The 
non-participating company issuing poli- 
cies at the low net rate cannot under the 
law promise to distribute any surplus it 
may accumulate, but with correspond- 
ing interest rates and mortality experi- 
ence, it ought to be able to accumulate 
a corresponding surplus. Such a com- 
pany, free of overhead cost, which ap- 
plied its surplus to dividends on the net 
rate would of course be able to offer 
rates impossible to any commercial com- 
pany. 

This statement of the history of the 
ordinary policy together with the pre- 
ceding information cohcerning the rea- 
sons for the organizations of the Teach- 
ers Insurance and Annuity Association 
completely cover this matter. 

There is still one other statement 
which works to the confusion of those 
unacquainted with insurance business. 
The teacher has been presented with 

47 



quotation of rates on certain life insur- 
ance policies offered by only a few com- 
panies and which as he is told, and 
as they are described, seem to be com- 
parable with policy rates in the Hand- 
book of the Teachers Insurance Asso- 
ciation. 

The explanation of this situation is 
found in the keen competition which 
goes on in the insurance business. As 
has been stated, the ordinary sound 
commercial company starts its policies 
with a loading of from 30 to 35 per 
cent, thereby giving itself a margin of 
safety within which its business can be 
securely conducted. Some companies 
have issued a few exceptional policies 
having a very small loading — in one 
case of only 5 per cent. It goes without 
saying that no company whose overhead 
expense amounts to 20 per cent of the 
premiums paid by its policyholders could 
afford to put any large amount of its 
business on this basis. It is against the 
principle upon which such a company 
operates and such policies cannot bear 
their fair proportion of the overhead 
which must therefore be borne by other 
policies. It will be found generally that 
these policies carry conditions that pre- 
vent any general use of them. 

There is no compulsion on any teach- 
er to buy insurance from the Teachers 

48 



Insurance and Annuity Association, and 
if he can get the same protection else- 
where at better rates he ought by all 
means to do it. He cannot. But the 
teacher who makes the attempt will have 
an enlightening experience In the matter 
of insurance. 

THE RELATION OF THE OLD 
AGE ANNUITY TO COLLEGE 
SALARIES 

Such questionings as are directed 
toward the policies issued by the Teach- 
ers Insurance and Annuity Association 
have been answered lo the preceding 
pages. There remain a few enquiries 
which concern themselves with the 
teacher and his ability and willingness 
to cooperate in such a system of old 
age annuities. 

The plan offered In the Teachers In- 
surance Association rests upon the only 
principles which can insure contractual 
security, the widest measure of freedom, 
and a cost determinable in advance. 
The colleges and universities that are 
participating in the contributory system 
of old age annuities say to their teachers 
— If you elect to take out an annuity 
contract the college will cooperate with 
you by a similar contribution not to 
exceed five per cent of the salary and 

49 



up to an agreed maximum. While the 
conditions of cooperation vary somewhat 
In different colleges and universities 
they are in effect those just stated. 

While this arrangement has been 
welcomed by many teachers a few 
doubts have been expressed in some such 
enquiries as these. Is the teacher on his 
meager pay able to contribute five per 
cent (or any sum he may prefer) toward 
an old age annuity? Will not the an- 
nuity contribution of the college be- 
come In time merely deferred pay? 
These matters have been dealt with in 
the various reports of the Carnegie 
Foundation, but a brief re-statement 
may be of Interest to those who have 
not read these voluminous documents. 

The college professor, like every 
other man on salary, feels the pinch of 
the present high prices. His pay has 
risen In the last ten years, and In the 
last fi\c years, but not so much on the 
average as the pay of men in certain 
other callings. The question of the scale 
of salaries is however an entirely dif- 
ferent question from that of making 
available to the great body of teachers 
an effective means for the protection of 
themselves and of their families. If the 
teacher's pay Is to be so small that he 
can do nothing under the best machin- 
ery possible for his own protection, 

50 



then the future of the college professor 
is hopeless. As a matter of fact, no 
scale of salaries that can ever come Into 
existence will enable teachers to devote 
even a moderate part of their income to 
Insurance or to an old age annuity w^ith- 
out a certain measure of self denial. 
This Is true of all other callings. The 
average lawyer's income, for example, is 
probably below that of the average col- 
lege professor. Furthermore no scale of 
salaries will ever fit the needs of all men 
in a given group at any one time. There 
will always be men on part time or 
with large families on Inadequate sal- 
aries who will be disturbed at the notion 
of devoting any part of their modest 
pay to such a purpose. No plan can be 
invented short of the millcnium to care 
for each individual case. The teacher 
with a family of six children living on 
a salary of one thousand dollars a year 
— even In a village — would need ex- 
traordinary management and self-denial 
to put aside anything for the future. 
No system can be set up, or ought to be 
set up, based on his situation. For the 
great body of teachers the question of 
participation In a system of old age an- 
nuities is one of moderate resolution and 
self-control. College salaries will never 
be put on a basis where these qualities 
will not be necessary, In some meas- 

51 



ure, if the future of the teacher and of his 
dependents are to be safeguarded at all. 
The Teachers Insurance and Annuity 
Association offers such a man the best 
machinery which can be desired to carry 
out this purpose, whatever be the scale 
of salaries of the future. 

The establishment of a fair living 
salary for the college professor is an- 
other problem and one to be worked out 
patiently and hopefully but in full view 
of the various factors involved. The 
average salary of the college professor in 
the United States and Canada is probably 
larger than the average pay of any other 
professional group. There are however 
no great financial prizes such as come 
to a few lawyers and physicians. Fur- 
thermore, of the one thousand colleges 
in the United States and Canada, fully 
half have no means to pay salaries be- 
yond a bare living. This fact will al- 
ways affect the general scale of salaries. 

College salaries have also been enor- 
mously diluted by the tendency of most 
college faculties and governing boards 
to bid for students by extending the cur- 
riculum over the whole field of knowl- 
edge, a process which means great in- 
crease in the number of teachers and the 
consequent leveling down of salaries. 
Without going into the general discus- 
sion of the salary question this much may 

52 



be said — the salary scale and the protec- 
tion of the teacher and his family are sep- 
arate questions. The establishment of a 
sound system of annuities combined with 
Insurance suited to his needs and at the 
lowest net rate found to be practicable 
Is absolutely In the interest of the 
teacher. In this respect the contrib- 
utory plan has an enormous advantage 
over any system of free pensions be- 
cause the question of pay and the 
question of pension are separated and 
each stands upon its own feet. For 
example, In the experience of the Car- 
negie Foundation young men of thirty 
have declined Increases of salary of from 
six hundred to a thousand dollars a 
year In order to remain in an associated 
institution for the prospect of a pension 
at 65 of $1,200 a year. An examina- 
tion of the rates of policies In the Hand- 
book of the Teachers Association will 
make clear the fact that the Increase of 
salary would have paid for the pension 
several times over. 

Contribution by tbe College. 

The complaint that the contribution 
of the college (In this case the em- 
ployer) will In time be absorbed in 
the salary schedule and that hence the 
teacher will, In the long run, pay hjs 

53 



own old age annuity has been fully dealt 
with in the reports of the Foundation, 
leading up to the establishment of the 
Teachers Insurance Association. The 
literature of the subject is covered in 
these reports. It is there shown that 
in a system of pensions paid for by the 
employer — or by anybody else — the pen- 
sion privilege will in time be considered 
a part of compensation. The disadvan- 
tage of the pension paid wholly by the 
employer — aside from its other weak- 
nesses — lies in the fact that the pension 
privilege is valued beyond its financial 
worth and that while it affects all salaries 
only a minority receive the benefit. 

Under the contributory plan contem- 
plated in the deferred annuity contracts 
of the Teachers Insurance Association 
the compensation of the college teacher 
for the future will be salary plus an an- 
nuity. For the next ten or fifteen years 
or perhaps longer the college contribu- 
tion to this annuity will be in effect an 
increase in compensation. By that time 
if the use of the contributory system be- 
comes general the college contribution 
to the annuity will come to be a part 
of the total compensation but dedicated 
to a special purpose in which the college 
and the teacher alike are interested. 
The result is, the salary has been put on 
a higher level and it will still remain 

54 



to the great advantage of the teacher and 
his family that his employer, the college, 
continue to advance this money and 
place It to his credit In the annuity ac- 
count. In other words — for the time 
the compensation of the teacher is in- 
creased so as to become salary plus old 
age annuity. Upon this higher level 
the annuity will In time become a regu- 
lar part of compensation and future in- 
creases of the salary scale will be deter- 
mined exactly as In the past. This ar- 
rangement is wholly in the Interest of 
the teacher, for even when looked upon 
as deferred compensation the contri- 
bution of the college must In every case 
return with its accumulation to the 
teacher or his family. Meantime the 
essential objects are accomplished — the 
teacher Is protected, the college faces its 
responsibility and the scale of compen- 
sation is bettered. 

Any teacher who feels the college con- 
tribution, to be, under these conditions, 
against his Interest, has a very simple 
remedy. He needs only to decline It. 



55 



THE TEACHER AND THE IN- 
SURANCE AGENT 

The fundamental question as to the 
service which the Teachers Insurance 
Association may render to the great 
body of teachers in the United States 
and Canada is not a question of the 
teacher's salary nor of his ability to pro- 
vide for his ow^n protection by the aid 
of machinery so completely fitted to his 
economic needs. That uncertainty is 
the one voiced in a former report of the 
Foundation and quoted on the cover of 
this brochure. 

"It is of course a fundamental 
question as to w^hether teachers can 
be induced to avail themselves of 
insurance facilities, however favor- 
able, without the pressure of the 
soliciting agent. This is a matter 
which only experience can demon- 
strate." 

No great body of men or women has 
hitherto been gathered into insurance 
companies except under the pressure of 
the agent's solicitation. The acquire- 
ment of old age annuities is like the 
process of getting religion — the young 
are not interested in it when it can be 
had on favorable terms and the old can't 

56 



get it. Will college teachers as a group 
avail themselves of the extraordinarily 
favorable facilities for insurance and for 
old age annuities provided by this new 
agency without the gentle pressure of 
the insurance agent? 

Some two years ago when the details 
of the formation of the new company 
were' under discussion an able actuary 
of one of the great companies made the 
hopeful prediction that owing, to the 
superior intelligence of the group to 
whom the appeal is made the facts will 
be understood and acted upon, while, as 
he added plaintively," we who are in the 
commercial companies must carry our 
salvation to the man in the street who 
cannot be converted or informed by a 
printed page." Some such reasoning 
formed the basis of the faith that such 
an agency would be availed of by the 
college teachers of the United States and 
Canada through the medium mainly of 
the printed statement and without the 
pressure of the soliciting agent. 

Just how large a part the agent's 
solicitation plays in the securing of per- 
manent life insurance policies is not 
easy to determine. So long as great 
soliciting organizations must be main- 
tained all business will be credited to 
this source. The situation is somewhat 
like that of Billy Sunday touching those 

57 



who tread the "sawdust trail." He 
counts all as saved (and of course by 
his machinery) although a little exami- 
nation makes it clear that a large pro- 
portion of the trailers are church mem- 
bers (they had got their own insur- 
ance), a very large proportion do not 
stick (they allow their policies to lapse), 
and only a minority are permanently 
saved (hold on to the policies they are 
persuaded by Mr. Sunday to take out). 

In other words it is not clear just 
how many of a particular group in the 
body politic could be induced to insure 
under some other system than that of 
direct solicitation by agents, nor how 
this number would compare with that 
of those who remain insured. The 
amount of insurance written by the Bu- 
reau of War Risk Insurance shows what 
can be done under exceptional circum- 
stances and upon a non-commercial basis. 
Nevertheless experience so far is all one 
way. Where men must be reached indi- 
vidually, the method of solicitation Is 
the only one that has gathered large 
groups into Insurance companies. 

On the other hand, the college teach- 
ers of the United States and Canada 
constitute not only a highly Intelligent 
group, but the fact that they are already 
assembled In college faculties makes a sit- 
uation quite different from that of reach- 

58 



ing the individual independently of his 
group. The college is itself interested 
in the annuity side of the Teachers In- 
surance Association and the college bur- 
sar or treasurer will become in time a 
ready source of information to a teacher 
who is contemplating either insurance or 
annuity. 

In addition the Teachers Insurance 
Association, being free of commercial 
pressure, is enabled to propose policies 
based upon the simple and direct prin- 
ciples of life insurance entirely compre- 
hensible by any intelligent man or 
woman willing to devote a brief time 
tb V^a ;study of the meaning and use of 
msiirance. It is a part of the work of 
the Teachers Insurance Association to 
put this information into the hands of 
teachers. The present bulletin is in- 
tended to serve this purpose, by remov- 
ing certain misapprehensions that have 
been created in one way or another. It 
will be followed by similar (but briefer) 
bulletins upon "What is Life Insur- 
ance For?" "How Much Insurance 
Ought a Man to Carry?" "How to 
Choose a Policy," and similar topics. 
In other words, the Teachers Insurance 
Association will pu| into the hands of 
teachers information touching insurance 
such as will enable them to decide in- 
telligently how their interests may best 



be served in these fields. This is a very 
different matter from that of explaining 
insurance business and organization. It 
is true that similar information has been 
given out by other insurance organiza- 
tions that operated without agencies and 
not always with the highest success, but 
not to a homogenous group of persons 
engaged in a single profession and gath- 
ered into convenient bodies. The ex- 
perience of the Presbyterian Ministers' 
Fund, the oldest insurance company in 
the United States, indicates that such 
information can be successfully placed 
in the hands of a professional body 
united by common ties when it is diffi- 
cult to do the same thing for the same 
number of individuals. The final pur- 
pose of the Teachers Insurance and An- 
nuity Association will not be attained 
unless it reaches in time the great body 
of the college teachers of the United 
States and Canada. Whether they can 
be reached by methods that do not suc- 
ceed with the average man remains to 
be seen. The experiment is an interest- 
ing one from many points of view. For- 
tunately the matter does not need to be 
settled in haste. The Teachers In- 
surance and Annuity Association offers 
policies carrying extraordinary advan- 
tages. Beyond obtaining a moderate 
number of policies sufficient to give a 

60 



fair distribution of the risk it has no 
occasion to strive for numbers and the 
outcome will be interesting not less from 
the point of view of the Association 
than from that of the teachers them- 
selves. It offers its policies to teachers 
end employes in higher institutions of 
teaching and of research — colleges, tech- 
nical schools, normal schools, institu- 
tions of research, etc. — upon the most 
favorable terms consistent with complete 
financial security. It will sell either 
an insurance or an annuity policy. It 
will deal with the individual teacher or 
will cooperate with the teacher and his 
college. It will give all information 
possible to any teacher or employe of 
these institutions who cares to inquire. 
It has no agents and issues policies only 
from its home office. It will do all in 
its power to furnish information about 
its policies. It is for the college teach- 
ers to decide how far they will make 
use of this service. 



€i 



RELATION OF THE TEACHERS 
INSURANCE ASSOCIATION 
TO THE CARNEGIE FOUN- 
DATION 

It remains finally to say a few words 
concerning the relations between the 
Carnegie Foundation and the Teachers 
Insurance and Annuity Association. 

They are distinct and independent 
corporations. The former is, in the 
eyes of the law, a charitable institution, 
chartered by the Congress of the United 
States; the latter is an insurance com- 
pany chartered under the laws of the 
State of New York and subject in all 
its operations to the authority of the 
Superintendent of Insurance. The Car- 
negie Foundation can, under its charter, 
make discriminations among institutions 
upon educational, denominational or 
other grounds. Its charter compels it to 
make certain discriminations in regard 
to institutions that require denomination- 
al tests of trustees or teachers. The 
Teachers Association can impose no such 
tests, it makes no discriminations and 
cannot be used for the purpose of edu- 
cational propaganda in any form. In 
dealing wHth the Teachers Insurance 
Association, teachers are concerned only 
with questions that pertain to all insur- 
ance companies — its financial solvency, 

62 



the fidelity and trustworthiness of its 
management and the effectiveness of the 
scrutiny of any state department of In- 
surance. All this is perfectly understood 
by those who have looked into the facts. 
It remains true, however, that the 
Teachers Insurance Association grew 
out of the experience and study of the 
Foundation. It was made a separate 
corporation under state supervision to 
accomplish two results — first to make 
the pension a matter of individual con- 
tract; second, in order that the question 
of old-age annuities might be divorced 
from any question of educational studies 
or discriminations. The Teachers In- 
surance and Annuity Association is the 
child of the Foundation and it would be 
strange indeed if it failed to receive 
from the Foundation full assistance and 
support. 

The Trustees. 

The Association has sixteen trustees. 
The first trustees had to be named in the 
charter and were therefore selected by 
the incorporators. The sole basis of 
their selection was fitness for the duties 
of trustees. The incorporators** 



** The incorporators of the Association 
were the following: Elihu Root, Nicholas 
Murray Butler, Arthur Twining Hadley, 



63 



deemed it necessary for the purposes of 
the Association to include a strong finan- 
cial group and a group of able and ex- 
perienced business men. 

They also felt it necessary to have 
represented upon the board actuarial ex- 
perience and knowledge. The action of 
the Corporation as expressed in the 
resolution already quoted provided for 
a representation of policyholders in due 
course. It was thought desiralble, how- 
ever, in the meantime, to have upon the 
board representative teachers. With this 
object in view two of the associates of the 
Foundation engaged in the work of the 
division of Educational Enquiry consent- 
ed to become members of the Board for 
the purpose of organization and two 
members of the Committee on Pensions 
of the Association of American Univer- 
sity Professors were invited at their 
convenience to become trustees of the 
Teachers Insurance Association. One 
of these has since declined and in his 
place was elected a well known pro- 
fessor of insurance in one of the large 
universities, the chairman of one of the 



Jacob Gould Schurman, Alexander C. Hum- 
phreys, Charles A. Stone, John Bassett 
Moore, Robert Weeks de Forest, George 
Woodward Wickersham, Newcomb Carlton, 
Edward Robinson, George Foster Peabody, 
Henry S. Pritchett. 

64 



actuarial committees which reported on 
the plan of the Association. 

The board of trustees is therefore 
made up at present (May, 19 19) as 
follows: There are sixteen trustees, of 
whom fourteen are from the United 
States and two from Canada; four of 
this group are among the ablest finan- 
cial men in America, whose knowledge 
of opportunities for sound investments 
is not exceeded by any group of men 
on the continent; five are business men 
of varied experience; one is an actuary 
of one of the great insurance companies; 
three are college professors (two of 
whom are expert actuaries), one is a 
college president, the two remaining be- 
ing the president of the Carnegie Foun- 
dation and temporarily one of the staff 
of the Foundation. 

Of the sixteen trustees four are trus- 
tees of the Carnegie Foundation — three 
business men and the president of the 
Foundation. The entire choice of trus- 
tees has been made with the purpose of 
forming a group of men competent to 
conduct an insurance company. The 
Carnegie Foundation neither controls 
nor desires to control this board of 
trustees. The intimation that the Foun- 
dation might desire to effect such con- 
trol for the purpose of educational 
propaganda is both short sighted and 

65 



ungenerous. The purpose of the Insur- 
ance Association is clearly stated in its 
charter. It can be used for no other. 
The Carnegie Foundation has never at- 
tempted to exert upon its associated col- 
leges and universities any such influence 
as this unworthy suspicion suggests. 
This form of complaint is an inheritance 
of the Teachers Insurance Association 
from the Carnegie Foundation. 

The Lessons of Experience. 

A certain disappointment and even a 
certain resentment toward the Founda- 
tion on the part of some teachers appeared 
when the Foundation changed its pension 
system from a full pension for a limited 
group of teachers, to a contributory and 
contractual plan open to all college 
teachers. This outcome (for the pres- 
ent at least) was ineluctable, no matter 
how compelling the reasons for the 
change, and nothwithstanding the fact 
that the Foundation continues the free 
pension system to the six thousand 
teachers in the associated colleges for 
fifty years to come at a cost of approxi- 
mately sixty millions of dollars. The 
minds of college men were adjusted to 
the notion of the free pension for col- 
lege teachers and largely through the 
influence of the Carnegie Foundation. 

66 



The Foundation was instituted at a 
time when no other conception of a pen- 
sion was entertained. The conception 
was found to be a mistaken one from 
every point of view — social, economic, 
financial. The trustees of the Founda- 
tion have met the situation in the only 
way that honest men could — first, by a 
thorough study to determine a sound 
solution of the pension problem, one 
available not only to a small group but 
to the whole body of college teachers of 
English-speaking North America; and 
secondly, by a generous fulfilment of 
the expectations of teachers under the old 
system. The Teachers Insurance and 
Annuity Association is the constructive 
result. The extension of the old rules 
for fifty years into the future is the 
most generous solution of such a situa- 
tion ever carried out by a board of trus- 
tees dealing with pension expectations. 
It is a generous fulfilment of the moral 
obligations of the Foundation, there were 
no legal obligations. Fifty years hence 
the Carnegie Foundation will be paying 
the pensions of teachers whose only claim 
to this privilege will rest on a few months 
of teaching as a college instructor a gen- 
eration before. The only change made 
in the rules which appreciably afifected 
the pensions these teachers will receive 
30 or 40 years hence was the change in 



the minimum age of retirement after a 
certain date — a change the Foundation 
had specifically reserved the right to 
make. 

The Desires of College Teachers. 

Notwithstanding all these circum- 
stances, notwithstanding the fact that 
the Teachers Insurance Association car- 
ries out faithfully the notions of college 
teachers themselves as obtained by wide 
correspondence and extended confer- 
ences, it was inevitable that when the 
Foundation changed from a free pen- 
sion system to a contributory system 
there should be a certain discontent and 
distrust, and that this should find ex- 
pression not only toward the Carnegie 
Foundation but against its child, the 
Teachers Insurance and Annuity Asso- 
ciation. It is too much to expect of 
human nature that all the beneficiaries 
of a system would approve a decision 
which curtails to some extent privileges 
whose rules of administration few had 
read and which were therefore regarded 
by many in the light of a contract. The 
great body of teachers, while not entirely 
accepting the notion that the free pension 
is not justified, and while they regret 
the changes in the minimum age of re- 
tirement, nevertheless realize that the re- 

6i 



sponslblllty for this determination rests 
upon the trustees, that it involves a num- 
ber of difficult questions in the use of 
trust funds and that the solution which 
has been reached represents a sincere and 
well-considered effort to deal justly with 
many interests. Those who have made 
the loudest complaints are generally the 
same group which has consistently stood 
for a conception of the teacher's pension 
as a subsidy to be given early in life. It 
would astonish the teaching profession 
to read the list of those who, for one 
reason or another, felt they ought to be 
subsidized in the early fifties in order 
to leave teaching for some other career 
which seemed more attractive. 

To this feeling of irritation — it is a 
feeling, not a reasonable opinion — there 
is only one reply. Honest and sincere 
men differ not from any difference in 
honesty but from difference in the point 
of view. Two men looking from win- 
dows on opposite sides of a house are 
not likely to describe the same things, 
though both may be honest and both 
accurate as far as they see. The trus- 
tees of the Foundation have sought as 
well as they were able to view this ques- 
tion from every point of view. Those 
who regard it solely from the stand- 
point of the beneficiary are looking from 
one window. That the two views dif- 

69 



fer as little as they do is due to the 
fact that the trustees of the Founda- 
tion and of the Carnegie Corporation 
have gone to great lengths to fulfill ex- 
pectations in the spirit rather than In 
the letter. 

So far as the Teachers Insurance and 
Annuity Association is concerned It de- 
serves to stand upon its own merits. Its 
policies are already making their own 
way as their value is understood and mis- 
understandings and misapprehensions 
have been cleared away. Their wider 
use may safely be left to time and to 
fuller knowledge. 

THE REAL QUESTIONS BEFORE 
THE TEACHER AND HIS COL- 
LEGE 

The long, and somewhat heated dis- 
cussions, over the details of insurance or- 
ganization laid before college teachers 
have gone far to obscure in their minds 
the fundamental questions Involved. We 
have the curious spectacle of men deeply 
stirred over matters of Insurance or- 
ganization and administration! The 
terms mutual or non-mutual, participat- 
ing or non-participating have been made 
the subjects of appeals full of feeling by 
persons most of whom never considered 
these matters until a few months ago. 

70 



As a matter of fact the college teacher 
has no real interest in these technical de- 
tails. Once the machinery has been set 
up it will not make the slightest differ- 
ence to him whether these details are 
finally determined in one way or in an- 
other, provided the trustees who manage 
the machinery are honest, capable and 
sincerely desire to provide college teach- 
ers a secure means for protection against 
the hazards incident to family life on a 
modest salary. The simple knowledge 
necessary to decide his own insurance 
questions he can easily attain, a knowl- 
edge of insurance technique and manage- 
ment he cannot hope to reach without 
an expenditure of time and study wholly 
unjustifiable. The experience of insur- 
ance management throughout the world 
shows that these details are nonessentials. 
Let us for a moment step aside from the 
confusion into which all these discus- 
sions have brought us and statue in the 
lowest terms the essential questions be- 
fore the teacher and his college so far 
as his protection and that of his depend- 
ents are concerned. 

Fundamental Questions. 

Every college teacher faces these two 
questions. How shall I protect my fam- 
ily against my premature death, and how 

71 



shall 1 protect myself against depend- 
ence, should I survive to old age? Every 
college board in the United States and 
Canada must on its side face the ques- 
tion, shall the college board, as employer, 
cooperate in some form of old age pro- 
tection for the teacher that will enable 
him to retire when his powers wane? 

As long as these questions were met by 
the offer of a pension paid by an outside 
agency the teachers and the colleges to 
whom they were made available accepted 
the protection heartily and gladly. 

Experience has shown that considera- 
tions partly social, partly economic and 
financial, make such a solution impossi- 
ble for the teachers of a democratic na- 
tion. No state, no corporation, no col- 
lege can afford to embark upon a system 
of free old age pensions for its citizens, 
its employes, or its teachers. The non- 
contributory pension for college teachers 
has gone. In its place, after years of 
study and with the aid of the expert ad- 
vice of Europe and America, a form of 
cooperation between the teacher and his 
college has been worked out for provid- 
ing the necessary protection. It places 
upon the teacher the responsibility he 
ought to take and upon the college board 
the responsibility resting upon the em- 
ployer. It meets the fundamental con- 
ditions of a pension system as defined by 

72 



a commission composed of college presi- 
dents, university teachers designated by 
the Association of American "University 
Professors, and representatives of educa- 
tional organizations. The commission 
had the benefit of the literature on the 
subject and of expert advice. As funda- 
mental conditions of a permanent pension 
S5^stem it named the following: 

Pension Principles. 

(i) The pension must be contractual 
with the individual teacher and 
the reserve to carry out the con- 
tract must be set aside year by 
year. 

(2) The pension, or old age annuity, 
should rest on the joint contribu- 
tions of the teacher and his col- 
lege. 

(3) The benefits of all payments into 
the contract of any teacher 
whether by himself or his college 
must with their accumulations be 
secured to the teacher whether he 
remain in the college, go to an- 
other college or leave teaching 
altogether. 

(4) The contributions must be upon 
a plan which shall provide old age 

73 




annuities proportional to the sal- 
aries at a cost capable of estima- 
tion in advance and within the 
financial ability of the teacher 
and of his college. 

! fundamental question which the 
r and his trustees face is, Are they 

_ , ^. Jly willing to cooperate in a system 

so conceived? 

Approval of Leading Institutions. 

Neither teachers nor boards of trustees 
have given very serious attention to this 
fundamental question. College boards 
and college presidents are pressed for 
money for many other purposes. They 
are not likely to cooperate in teachers 
pensions until the nature of this obliga- 
tion is more generally understood. One 
thing will operate to bring this matter to 
decision. The stronger American and 
Canadian institutions of higher learning 
are ready to meet their obligations in 
this matter. They will cooperate upon 
some plan with their teachers — and par- 
ticularly with younger teachers — to solve 
this problem. In time every strong col- 
lege will find it necessary to cooperate 
with its teachers in some plan for old 
age protection. 

The Teachers Insurance and Annuity 

74 



